NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A9311
SPONSOR: Gottfried TITLE OF BILL:
An act to amend the insurance law and the state finance law, in relation
to creating the health insurance guaranty fund
PURPOSE:
To protect consumers and providers from the failure of a health insurer
to perform its contractual obligations due to financial impairment or
insolvency.
SUMMARY OF SPECIFIC PROVISIONS:
Amend various provisions of the Insurance Law and State Finance Law to
establish the New York Health Insurance Consumer Protection Security
Fund. In the event of an insolvency or failure by a health insurance
company, the fund would reimburse providers for uncompensated care
delivered to its enrollees. The fund would be financed by a onetime,
temporary assessment on remaining health insurers-not a permanent tax.
Other provisions of note: prohibits insurers from passing on assessments
to policyholders; assessment on remaining insurers would be based on
premiums received during the previous calendar year; allows the Depart-
ment of Financial Services superintendent to adjust or suspend the
assessment based on a health insurer's financial situation.
JUSTIFICATION:
Consumers and providers were severely harmed by the failure of Health
Republic Insurance of New York (HRINY). The company owes hospitals and
doctors across the state hundreds of millions of dollars and its demise
left consumers worried about their access to care as they scrambled for
new coverage.
While the Department of Financial Services has expressed hope that
"modest payments" could resume, there is no information on how much
money, if any, remains available within HRINY to reimburse providers for
outstanding claims. This is not the first time that a New York health
insurer has failed-the last major one was Wellcare in 1998-and likely
won't be the last.
New York has no system of protection for consumers and providers when a
health insurance plan becomes insolvent. This bill seeks to remedy that
situation by creating a health insurance guaranty fund-a basic consumer
protection enjoyed by every other state in the nation, along with Wash-
ington, DC and Puerto Rico. The fund would be financed by a one-time,
temporary assessment-levied only in the event of a health plan's insol-
vency-on other insurers.
Had such a health insurance guaranty fund existed, it could have mini-
mized the confusion caused by HRINY's failure and promoted confidence in
a shaken health insurance marketplace: the fund would enable consumers
of a bankrupt insurer to continue to receive care from their own doctors
and hospitals by guaranteeing that providers would be paid for care
provided.
A health insurance guaranty fund would neither create a new permanent
tax nor require an investment by the State. It would not affect consumer
premiums either: though insurers would pay a temporary assessment in the
event of an insolvency, this would be offset by new customers (and new
premiums) from failed competitors. The bill also prohibits insurers from
passing on assessments to policyholders.
Fortunately, insurer failures are rare, but when they do occur we need a
statutory framework with protections that allow consumers to transition
smoothly to other coverage and ensure they have continued access to
health services through stable provider networks. New York has a proper-
ty and casualty insurance guaranty fund. It should extend the same
protection to health insurance policy holders.
PRIOR LEGISLATIVE HISTORY:
Similar legislation (S.6594/A.8368-A of 1999/2000) was referred to the
Senate Insurance Committee and ordered to third reading in the Assembly.
S.6166/A.8828 of 1999/2000 included a health guaranty fund and passed
the Assembly in 1999.
FISCAL IMPLICATIONS:
None.
EFFECTIVE DATE:
Immediately.
